The Payments System Board monitors trends in retail payments. Developments in 2014/15
were consistent with the longer-term shift towards electronic non-cash payment
methods. There was a sharp increase in fraud in the card-not-present environment.

The Payments System Board monitors developments in retail payments relevant to its
responsibilities to promote efficiency and competition in the Australian payments
system.

Cash Payments

The number and value of ATM cash withdrawals (the main method individuals use to
obtain cash) fell by 5 per cent and 2 per cent respectively in 2014/15, continuing
the trend of recent years (Graph 1). The continued decline in
ATM withdrawals is likely to reflect a number of factors, including consumers'
adoption of new technologies such as contactless card payments that, like cash,
provide for relatively quick transaction times. Growth in online commerce is
most likely also a factor, with everyday transactions increasingly occurring
online rather than in person. Recent trends in withdrawals are consistent with
previous snapshots of consumers' use of cash for individual payments, with
the results of a 2013 Bank survey showing that the relative use of cash for
consumer payments had declined noticeably since earlier studies in 2007 and
2010. Nevertheless, cash remains an extensively used payment method, especially
for low-value transactions.

Non-cash Payments

In contrast to cash, the use of most non-cash payment methods continues to increase
– with the exception of cheque payments. In particular, debit card use
continues to grow rapidly (Table 1). Australians on average made
around 400 non-cash transactions per person in 2014/15, with card payments
accounting for almost two-thirds of these payments (Graph 2).

Debit and credit card payments

Debit and credit cards are the most frequently used non-cash payment methods. In
2014/15 Australian personal and business cardholders made around 6.2 billion
card payments worth $503 billion, up by 11 per cent and 7 per cent respectively
from the previous year – similar to the increase observed in recent years.
Growth in debit card use continues to outpace growth in credit card transactions
(Graph 3). The average value of card
payments continues to fall, reflecting a greater use of cards for low-value
transactions.

Within credit and charge cards, the combined market share of the three-party card
schemes (American Express and Diners Club) was largely unchanged in 2014/15
at 19–20 per cent of the value of spending (Graph 4). For debit cards, the MasterCard
and Visa debit systems continue to increase their market shares relative to
eftpos.

As discussed later in this chapter, during 2014/15 industry implemented an initiative
that phased out signature authorisation for the vast majority of in-person
card payments. Until recent years, cardholders primarily authorised international
scheme debit and credit card payments by signing for purchases, while the use
of a PIN (Personal Identification Number) was required only for transactions
over the eftpos network and for ATM cash withdrawals. Under the recent initiative,
domestic transactions on Australian-issued American Express, Diners Club, MasterCard
and Visa chip cards now require a PIN to authorise point-of-sale purchases;
contactless transactions are the main exception, with no authorisation required
for transactions under $100.

Cheque, BPAY and Direct Entry payments

The decline in the use of cheques has accelerated, with the total number of cheque
payments falling by 16 per cent in 2014/15, to be 70 per cent lower than in
2004/05 (Graph 5). While the number of all
types of cheque transactions – personal, commercial and financial institution
cheques – has continued to decline, the average value of a cheque payment
continues to rise, with a significant share of remaining cheque use related
to commercial payments and financial institution cheques for certain types
of transactions such as property settlements. Despite accounting for only a
small share of the number of payments, cheques still account for a considerable
share of their value (around 8 per cent of non-cash payments, i.e. more than
debit cards, credit cards and BPAY combined).

In light of declining cheque use and rising unit costs, the payments industry has
been seeking improvements in the efficiency of the cheque system. During the
year, the industry implemented changes to clearing arrangements, which allow
cheque details to be digitally captured and payments cleared between banks
without the need for the physical exchange of cheques.

The number of BPAY transactions increased 4 per cent in 2014/15 and the value by
11 per cent. BPAY payments tend to be for relatively large amounts, with an
average value of $884, reflecting its use by consumers for payments such as
utilities, education fees and investments, as well as some use by businesses.
The value of payments processed through BPAY has slightly exceeded the value
of credit/charge card payments for the past three financial years.

Direct Entry payments remain an important part of the payments landscape, used by
consumers for internet ‘pay-anyone’ transactions, and by businesses,
corporations and governments for a range of bulk payments, such as salary and
welfare payments and bill collections. Reflecting the latter types of transactions,
average payment values are significantly higher than the levels typically associated
with ‘consumer’ payments. Accordingly, Direct Entry payments account
for the bulk of the value of non-cash payments in the Australian economy. In
2014/15 growth in the value of direct debits and direct credits was slightly
above the average for the past few years.

Online payments

Online payment channels are an increasingly important element of the payments landscape,
with users' needs serviced by a mix of well-established payment methods
and some newer, more specialised providers. The use of BPAY and internet pay-anyone
transactions continues to grow steadily and accounts for the bulk of online
payments by value. However, the use of specialised online payments systems
has continued to grow very rapidly, while the value of debit and credit card
spending in online transactions grew at around twice the pace of card spending
in other (largely point-of-sale) environments in 2014/15.

International Payment Trends

The longstanding trend observed in Australia of a substitution away from paper-based
to electronic payment methods has been evident in most other jurisdictions
as well, according to data published by the Committee on Payments and Market
Infrastructures (CPMI) (Graph 6). Cross-country data confirm
that Australians are among the most frequent users of payment cards (Table 2).
As in Australia, cheque use in other countries has fallen significantly; indeed,
there are a number of continental European countries where the cheque system
is now little used or has been closed down.

Merchant Service Fees

The average fee paid by merchants to their financial institution for transactions
on MasterCard and Visa credit and debit cards has been largely unchanged in
recent years at around 0.78 per cent of the value of transactions (Graph 7). These fees had previously
fallen following the Bank's reforms to the payment cards system in the
early 2000s. Fees for American Express and Diners Club cards have also declined
since the early 2000s, with the average fee for American Express transactions
falling by a further 4 basis points in 2014/15 to 1.70 per cent of the value
of transactions. The average merchant service fee for eftpos transactions was
unchanged in 2014/15 at around 10 cents per transaction. This corresponds to
a rate of 0.17 per cent for the average eftpos transaction.

Interchange Fees

Interchange fees are wholesale fees paid between a merchant's financial institution
and a cardholder's financial institution when a cardholder undertakes a
card payment. As discussed in the next chapter, the Reserve Bank is currently
undertaking a review of its card payments regulations, including the standards
that cap the average level of interchange fees in the MasterCard and Visa credit
card systems, the Visa debit card system and the eftpos debit card system.

Under the Bank's standards, the weighted average of multilateral interchange
fees in the above systems must not exceed certain benchmarks on specified compliance
dates – 1 November of every third year after 2006, and on any date the
card scheme makes a change to its schedule of interchange fee rates.

The multilateral interchange fee benchmarks were unchanged in 2014/15, at 0.50 per
cent of the value of transactions for the credit card systems and 12 cents
per transaction for the debit card
systems.[1]
The Bank announced in March 2015 that, reflecting the review of card payments
regulation (see ‘Retail Payments Policy and Research’)
and the likely compliance costs involved in recalculating the cost-based benchmarks,
it was waiving the recalculation ahead of the next scheduled compliance date
of 1 November 2015.

Under the Bank's standards, card schemes have the flexibility to set different
multilateral interchange fees for different types of transactions, provided
that the weighted average of these fees for each system does not exceed the
relevant benchmark on the compliance dates. Neither MasterCard nor Visa made
changes to credit card interchange fees during 2014/15, after most recently
making changes in June 2013. In the debit card systems, MasterCard and Visa
made a number of changes to their interchange fee schedules in November 2014.
Both schemes also amended their prepaid card interchange fee schedules at that
time.[2]
eftpos Payments Australia Ltd left interchange fees for eftpos transactions
unchanged in 2014/15, after most recently making changes in October 2012.

Cheque and Card Payments Fraud

Total losses relating to fraudulent cheque and debit, credit and charge card transactions
(where the card was issued and/or acquired in Australia) increased by 29 per
cent to $450 million in 2014, according to data collected by the Australian
Payments Clearing Association (APCA). The fraud rate (the value of fraudulent
transactions as a share of overall transactions) on Australian-issued cards
increased from $0.47 per $1,000 in 2013 to $0.59 per $1,000 in 2014, to be
above the previous peak of $0.52 per $1,000 in 2011. The increase reflected
a 30 per cent rise in fraud on debit, credit and charge cards from the international
schemes to $421 million in 2014 (Graph 8, Table 3).[3]
Losses relating to fraudulent eftpos and ATM transactions also rose noticeably owing to a
pick-up in card counterfeiting, but at $23 million remain low compared with
scheme card fraud. Cheque fraud declined by 14 per cent in 2014, to $6 million.

The increase in scheme card fraud was driven by a 61 per cent increase in losses
associated with Australian cards being used to make fraudulent purchases overseas
in a card-not-present (CNP) environment (i.e. online, via telephone or via
mail). CNP fraud losses on foreign cards used in Australia increased by around
a third, while there was a smaller increase in solely domestic CNP fraud. Total
CNP fraud losses amounted to $345 million in 2014, accounting for over 80 per
cent of all losses covered by APCA's collection.

In contrast to the large increases in CNP fraud, in 2014 there was a slight fall
in losses relating to fraudulent card-present transactions on scheme cards.
This reflected a decrease in fraudulent transactions acquired in Australia
(on both Australian and international cards), offset by an increase in fraud
on transactions acquired overseas.

As discussed above, during 2014/15 the Australian payments industry completed an
initiative to phase out signature authorisation for most types of card-present
transactions. This is expected to reduce domestic card-present fraud further.
The Board observes that good progress has been made on addressing card-present
fraud and encourages the industry to now turn its attention to addressing the
growth of CNP fraud.

Fraud losses relating to eftpos and ATM transactions increased from $18 million to
$23 million in 2014, largely reflecting an increase in counterfeit/skimming
fraud. The ongoing rollout of the EMV chip standard at ATMs is designed to
reduce counterfeiting activity in future.

Footnotes

All interchange fee benchmarks and rates quoted in this section are exclusive of
GST.
[1]

While interchange fees applying to prepaid card transactions are not formally regulated,
in September 2006 the Board noted its expectation that interchange fees for
transactions on these cards would be published and set broadly in conformity
with the Standard on interchange fees in the Visa Debit system.
[2]

Fraud statistics for ‘scheme’ debit, credit and charge cards include
transactions through the international card schemes – MasterCard, Visa,
American Express, Diners Club and JCB.
[3]